John Pazdan

“The first panacea for a mismanaged economy is inflation. The second is war. Both bring a temporary prosperity. Both bring permanent ruin.” -Hemingway

and now a few words from Dmitry Orlov…..

Money as Metaphor

At the start we might have a traditional society, with a largely non-monetized economy, analogous to a healthy working individual, who makes a bit of spending money, and uses it to get drunk (i.e., consume) after work and on holidays.

His liver (economy) is in fine shape, able to process all the alcohol with no ill effects (provide the consumer goods in exchange for money).

Over time, his liquor consumption (spending) increases, and his capacity for work drops (outsourcing).

He now borrows against everything he owns (equity cash-outs), his future earnings (consumer debt) and even the earnings of his unborn children (national debt) in order to continue drinking his fill every night.

Later, his liver becomes enlarged and diseased (bubble economy), is no longer capable of processing all this alcohol, generates back-pressure (commodity price spikes, energy shortages) and even causes black-outs (market crashes).

He can work even less (layoffs), and becomes unable to service his debts (foreclosures, repossessions, defaults).

No longer able to afford all the booze, he goes on the wagon (decrease in consumer confidence and spending), which gives him ‘Delirium Tremens’ (recession, depression).

Fade to Black.